Safe and Sound

Lea County State Bank

Hobbs, NM
5
Star Rating
Hobbs, NM-based Lea County State Bank is an FDIC-insured bank founded in 1928. As of December 31, 2017, the bank held equity of $30.8 million on assets of $298.0 million.

U.S. bank customers have $258.8 million on deposit at 3 offices in NM run by 59 full-time employees. With that footprint, the bank holds loans and leases worth $82.8 million, including real estate loans of $22.5 million.

Overall, Bankrate believes that, as of December 31, 2017, Lea County State Bank exhibited a superior condition, earning a full 5 stars for safety and soundness. Here's an analysis of how the bank did on the three major criteria Bankrate used to evaluate American banks on safety and soundness.

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THE INSTITUTION'S SCORE

Capital Score

Capital works as a cushion against losses and as protection for account holders when a bank is experiencing financial instability. It follows then that a bank's level of capital is a valuable measurement of a bank's financial resilience. From a safety and soundness perspective, more capital is better.

On our test to measure the adequacy of a bank's capital, Lea County State Bank received a score of 12 out of a possible 30 points, coming in below the national average of 13.13.

A bank's Tier 1 capital ratio is a commonly used measure of this buffer. Lea County State Bank's Tier 1 capital ratio was 20.16 percent, higher than the 6 percent level considered adequate by regulators, but less than the national average of 25.65 percent. A higher capital ratio suggests the bank will be better able to weather economic headwinds.

Overall, Lea County State Bank held equity amounting to 10.33 percent of its assets, which was lower than the national average of 12.03 percent.

Asset Quality Score

Bankrate uses this test to determine the effect of problem assets, such as past-due mortgages, on the bank's loan loss reserves and overall capitalization.

Having large numbers of these types of assets means a bank may eventually have to use capital to absorb losses, decreasing its cushion of equity. Many of those assets are also likely to be in non-accrual status and thus aren't earning interest for the bank, decreasing earnings and elevating the chances of a failure in the future.

Lea County State Bank scored above the national average of 37.49 on Bankrate's asset quality test, racking up 40 out of a possible 40 points .

The percentage of problem assets a bank holds compared to its total assets is a helpful indicator of asset quality.As of December 31, 2017, 2.27 percent of Lea County State Bank's loans were noncurrent -- in other words, they were more than 90 days past due or were in non-accrual status. That's above the national average of 1.01 percent.

Banks maintain a reserve known as an "allowance for loan and lease losses" to deal with problem assets . How large that reserve is can be a handy indicator when evaluating a bank's ability to manage problem assets, especially when compared to the total amount of problem loans. Unfortunately, the FDIC did not provide information on Lea County State Bank's loan loss allowance in its most recent filings.

Earnings score

A bank's profitability affects its long-term survivability. Earnings may be retained by the bank, boosting its capital buffer, or be used to address problematic loans, likely making the bank more resilient in tough times. Banks that are losing money, however, have less ability to do those things.

Lea County State Bank scored 18 out of a possible 30 on Bankrate's test of earnings, beating out the national average of 15.12.

Return on equity, calculated by dividing net income (profit, essentially) by total equity, is one important way to measure a bank's earnings. Lea County State Bank's most recent annualized quarterly return on equity was 9.93 percent, above the national average of 8.10 percent.

For the twelve months ended December 31, 2017, the bank earned net income of $3.0 million on total equity of $30.8 million. The bank experienced an annualized return on average assets, or ROA, of 1.02 percent, above the 1 percent deemed satisfactory in accordance with industry standards, and above the average for U.S. banks of 1.00 percent.

WHAT IS SAFE & SOUND?

Bankrate.com's Safe & Sound Ratings provide a star rating system to evaluate the current financial status of financial institutions. The information gathered about banks, credit unions and thrifts is updated as set forth in the Terms of Use of Safe & Sound Ratings and Reports. The Safe & Sound Ratings information is grouped by categories of banks, thrifts and credit unions.

Scoring methodology

Bankrate.com evaluates the financial condition of institutions and assigns a one- to five-star rating for each with five stars representing the highest rating. Institutions with satisfactory performance will generally receive a rating of three or more stars. The majority of institutions fall into the three- to four-star range. An institution with an "NR" rating may be too new to rate or may have limited the publicly available information in their regulatory filings. The "NR" is not an indication of financial strength or weakness. The Safe & Sound rating is believed to be reliable, but the information is not guaranteed. In addition, events since the information was collected may have altered the institution's financial condition.